In the year 2024, these three stocks experienced a doubling in value. Among them, the optimal choice for 2025 is highlighted.
In January 2024, specialists at financial organization Baird named Toast (TOST 3.35%) as one of their leading financial-technology stocks for the approaching year. Their choice proved accurate. Shares of Toast increased by 100% in 2024, easily outperforming the S&P 500 index.
Toast wasn't the sole stock to double in worth in 2024. Shares of Revolve (RVLV 0.57%) and On Holding (ONON 2.26%) also doubled, climbing 102% and 103% respectively.
While there are numerous stocks that doubled or more in 2024, I prefer to focus on Toast, Revolve, and On as they are underlooked companies generating impressive gains. Here's why the trio is succeeding, and which one I consider the finest long-term stock to purchase.
1. Toast
As interest rates escalated, investors became increasingly concerned about a company's earnings since borrowing money wasn't exactly cheap anymore. This was a challenge for restaurant technology company Toast, being in the red with a net loss of $275 million and $246 million in 2022 and 2023 respectively. However, things have markedly improved in 2024, leading to a more optimistic investor group.
Throughout the first three quarters of 2024, Toast has only had a net loss of $13 million compared to a net loss of $231 million in the identical period of 2023. The cause for this remarkable transformation is straightforward: the company's revenue has rapidly escalated, while management has maintained a tight rein on its operating expenses.
In reality, operational expenses are a complex issue, and Toast hasn't handled them uniformly. Contrary to expectations, its expenditure on sales and marketing has continued to grow – it's up by 14% so far in 2024. However, its general and administrative expenses (corporate) have decreased by 17%. Essentially, the company remains committed to investing in growth but is reducing corporate overhead wherever possible. That's a smart tactic to boost profits.
Third-quarter revenue for Toast increased by 26%, which is an impressive growth rate. Moreover, it's now moving closer to profitability, as well. This dual achievement is why the stock doubled in 2024.
2. Revolve
Trading at approximately 1-time sales, Revolve stock began 2024 at one of its cheapest valuations ever. The digital-first fashion company enjoys popularity among Millennial and Gen Z shoppers, but its stock wasn't as appealing to investors due to its stalled growth. However, the stock more than doubled in 2024 as its revenue picked up once again.
To clarify, Revolve is a relatively sound business. It doesn't aim for mass appeal, and its average order value of $303 in the third quarter of 2024 shows that its products are on the pricey side for widespread adoption. However, its active customer base of 2.6 million remains strong and continues to expand, increasing by another 5% in the latest quarter.
Additionally, by targeting the higher end of the apparel market, Revolve enjoys respectable profitability. The company has reported positive net income in every quarter since going public in 2019 and boasts a substantial cash reserve of over $250 million.
Indeed, the issue with Revolve had been its anemic growth. But in Q3, the company's revenue surged by 10%, and management indicated that Q4 was off to a better start than Q3. Given its strong financial position, the stock is now poised for further growth as its expansion rate accelerates.
3. On
When some prominent athletic footwear brands decided to prioritize direct-to-consumer channels during the global pandemic, retail shelf space was ripe for companies like On to seize the opportunity. Considering On's net sales increased by 69% and 47% in 2022 and 2023 respectively, it's no secret that the company is making inroads.
Through the first three quarters of 2024, On's net sales have increased yet again by 27% compared to the same period in 2023. To be clear, just over one-third of the company's sales are direct-to-consumer. Nevertheless, as a relatively new shoe brand, it isn't as well-known as more established brands yet. But its popularity is growing rapidly as more consumers become exposed to its products.
In summary, On's net sales have more than doubled in just two years. With this rapid top-line growth, management has been able to charge full price for its shoes, boosting its gross margin to a record high above 60%. Moreover, it also boasts a superior operating margin of over 9%.
These are outstanding financials for On, and investors are understandably optimistic. And while On continues to gain in size, the athletic shoe market is vast, and there's still plenty of room for additional market share gains.
My pick for 2025 (and beyond)
I believe Revolve is a solid business, but its narrow focus on a specific market segment makes its long-term growth potential uncertain for me. Even though growth has resumed, a 10% increase in revenue is still relatively modest, indicating that further growth is still limited. Therefore, Revolve is eliminated as my top pick.
This company is definitely seeing growth and its financials are impressing everyone. However, consumer preferences in footwear can shift unexpectedly. Essentially, it can be challenging to secure a reliable competitive edge. Hence, I believe it's crucial to purchase shoe shares at reasonable prices.
At 15 times sales, On's stock does not appear to be trading at a fair price. While it might still work out for investors, there doesn't seem to be a lot of gap between current value and underlying worth, which is why I wouldn't invest in On's stock at the moment.
However, Toast stock is my recommendation for 2025. But I left out the most compelling reason behind its potential growth this year. As per management, as the market saturation increases, it becomes easier to attract new clients. In other words, as more restaurants adopt its technology, its growth propels through word of mouth.
Toast is right on the brink of the tipping point that management looks for in various U.S. markets at the moment. For this reason, I anticipate the company to maintain strong growth in the upcoming year and beyond. And if profits increase with improved operational efficiency, then the stock could see even more significant gains.
- With Toast's revenue growth and improved operational efficiency, many investors are looking to capitalize on this trend by investing in the stock, believing it has the potential to yield even more significant gains in the future.
- As investors seek opportunities in the finance sector, Toast's impressive performance and strong position in the restaurant technology market make it an attractive option for those looking to invest their money in a company with significant growth potential.
